Manufacturing: Cost Pressures and Supply Disruptions Weigh on Activity

Indonesia’s manufacturing sector slipped into contraction in April, with the PMI falling to 49.1, its lowest level since June 2025, as output, employment, and purchasing activity weakened amid softer demand and heightened global uncertainty. Firms responded by trimming input buying and drawing down inventories to navigate persistent delivery delays and supply constraints, while new orders rose only marginally due to advance buying rather than genuine demand strength. Cost pressures, however, intensified sharply, with input inflation hitting a multi-year high and selling prices rising at the fastest pace in over a decade, as business sentiment fell amid prolonged Middle East tensions. While the Industrial Confidence Index (IKI) remained in expansion territory, its continued moderation signals that manufacturing resilience is being increasingly tested by elevated costs, supply-chain frictions, and geopolitical headwinds, leaving the near-term outlook more fragile.

Trade Balance: Softer Exports Reflect Commodity and Demand Headwinds

Indonesia’s trade balance remained in surplus in March 2026, but underlying dynamics turned less supportive as exports contracted 3.1% YoY, led by a sharp drop in non-oil agricultural commodities, particularly CPO (-27% YoY), cocoa, coffee, and spices, reflecting softer global demand and pressure on agricultural prices. This aligns with broader global trends, as the World Bank projects a decline in agricultural and edible-oil prices in 2026, making export values more vulnerable even when volumes hold up. Meanwhile, imports still grew 1.5% YoY, driven by intermediate and capital goods, underscoring Indonesia’s import-intensive growth profile as production and investment continue despite weaker exports. While the headline surplus was preserved by contained energy imports and resilient manufacturing exports on a quarterly basis, the March data point to a narrower buffer, with trade performance increasingly exposed to commodity price swings and uneven global demand.

Inflation: Moderating Inflation Reflects Softer Demand, Persistent Cost Pressures

Indonesia’s inflation continued to moderate in April 2026, with headline inflation easing to 2.42% YoY from 3.48% in March and 4.76% in February, as earlier low-base effects from electricity tariffs faded and post-Lebaran demand normalized. On a monthly basis, inflation rose just 0.13% MoM, well below last year’s seasonal increase, signaling softer underlying consumption amid broader demand restraint. Price pressures remained concentrated in food items—notably rice, chicken, cooking oil, and fresh fish—as well as transport services, particularly airfares, pointing to ongoing cost-push dynamics linked to logistics and energy prices. Meanwhile, gold jewelry inflation eased, providing a key offset as global gold prices corrected, even as core inflation stayed stable around 2.4% YoY. Overall, April’s data indicate that inflation momentum has shifted from base-effect and seasonal spikes toward a more subdued but uneven profile, where weak demand helps cap price gains, but external shocks—energy, transport, and geopolitics—continue to pose upside risks, keeping BI’s policy stance firmly cautious.

Stability Takes Priority Over Accommodation

Bank Indonesia is likely to pause for longer at 4.75% through 2026, as recent data point to a less favorable policy trade-off amid weakening activity signals and persistent external pressures.
On the supply side, higher producer costs, falling industrial confidence, and softer manufacturing momentum suggest early signs of economic cooling, while on the demand side, moderating food inflation and easing gold jewelry prices reflect post-Ramadan consumption normalization and softer household spending.
However, energy-linked inflation has picked up, driven by higher non-subsidized fuel prices, with similar cost-push risks likely to spill over into oil-dependent industries. This uneven backdrop has weighed on the rupiah, as slowing domestic demand coincides with rising external cost pressures and a less accommodative global rate environment, keeping USD/IDR biased toward weakness and volatility. As a result, BI’s room for monetary accommodation remains limited, keeping rate cuts off the table in 2026 as FX stability and inflation risks continue to take priority.

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